Understanding Credit – It’s A Must!
Prior to 2000, lenders had no real way to help clients improve their FICO scores other than telling them to pay off / off credit cards with high balances. After 2000, rating programs were provided to credit companies to help loan officers immediately help their borrowing clients improve their scores, resulting in better rates and higher scores. These automated products have done wonders for my customers. They help determine exactly what to do! I immersed myself in these products 20 years ago and I qualify as a credit expert because I have been studying credit for two decades now.
Today, most lenders have access to Wayfinder and What-If-Simulator, programs where you can adjust credit balances and see EXACTLY what those adjustments will do to FICO SCORE. With these tools, you can immediately enlighten your customers on what to pay, what the FICO SCORE will improve, and within 10 days or so… rescore the customer to update the score immediately! No need to wait 30 to 60 days to update scores! While these programs do not guarantee 100% results, I have been working with these tools for 20 years and they are extremely accurate. I have thus helped thousands of customers to obtain better rates!
In addition, 95% of the general public has very little knowledge of how the credit world works, what needs to be done to improve your scores; what to do to prevent their scores from falling (apart from the 30 day delay on a payment). Most people just don’t know how to profit from improving their scores. Let me share with you some credit myths that the majority of the public still believe in:
“Paying my collection account will help my score immediately.” It’s a big one! The answer is no! Of course, you would think taking responsibility and paying for a collection would help your score. But believe it or not, doing just that will hurt your score in the short term. So if you are in the market to buy a home, it is best NOT to pay off a collection without first consulting your loan officer. You could hurt yourself by doing the right thing!
“I get my consumer credit report from FreeCreditReport.com., Credit Karma or AnnualCreditReport.com. This all shows my FICO mortgage scores! ” NO. Not true! Yes, they all reflect a score, but those scores are consumption scores, NOT mortgage-based FICO scores! They’re based on different scoring models than, say, a lender that draws your credit OR a car dealership that manages your credit. This is why consumers are sometimes shocked when a lender runs their credit, and the scores are much lower than the consumer score they got at home… or the credit score that appears on their credit card statement! It is important that you know the difference!
“Having too many credit cards will hurt my FICO SCORES.” NO! As long as you have minimal balances, having 100 credit cards will give you a higher FICO score than having 2 credit cards! It’s true, the more the merrier! Your FICO scores are based on the balances you carry against maximum credit limits! If you have 100 cards with a credit limit of $ 5,000, you have available credit of $ 500,000. If you owe $ 10,000 on all of that credit, that’s 2% of the outstanding balances. If you have 2 credit cards, each with a limit of $ 5,000, or an available credit of $ 10,000… and you owe $ 5,000 on that credit, that’s 50% of your outstanding balance… and you will have a score MUCH LOWER.
I’ll be back next month to share some mind-blowing MYTHS with you! In the meantime, if you have any questions about credit or lending in general, please don’t hesitate to contact Curt Kravitz, 35-year mortgage industry veteran, Bay Equity Home Loans, at 661-705-2500.